BofA Blasts Sell Bonds, Sell Gold, Buy Dollars

"After several weeks, Gold is setting up for a sell, US Treasuries are set to resume their bear trend, and the USD is set to resume its bull trend. Get ready..." is the ominous warning BofAML's Macneil Curry sets forth in his technical treatise this weekend. Despite the plethora reasons for rates to go lower for longer (and treacherous market conditions expected ahead) and the various fundamental and technical drivers of recent precious metals strength, Curry says it's time.

Via BofAML's Macneil Curry,

Over the course of the past several weeks, some of our core views and themes have fallen into short term corrective mode. Specifically, we are referring to our bearish US Treasury view and our bullish US $ view (most notably against €, CHF and many EMFX, as well as gold and silver). In the week ahead, we look for these trends to re-emerge and do so in a manner that should provide some excellent low risk, high reward trade setups. Beginning with US Treasuries, we likely look to sell 10yr notes into the 2.53%/2.49% zone for the Apr-04 highs at 2.82% and beyond. In FX, we will likely look to re-initiate €/$ shorts into the 1.3676/3735 zone for a resumption of its medium, potentially long term bear trend and in $/ZAR we will likely look to re-buy near the 50d (10.5357) for a resumption of its long term bull trend and new 2014 highs (now 11.3915). Finally, gold is fast approaching the 1334/72 topping zone from which we look for significant weakness to and through 2013 lows at 1180.

Chart of the week: US 10yr Treasury yields to resume higher

In our view, the bear trend is about to resume. Intra-day charts say the 2wk consolidation is in its final stages. We will likely look to sell one last push lower, ideally to 2.53%/2.49%, for a resumption of the larger bull trend to 2.82% & beyond. 

Get ready to sell EURUSD...

The choppy range of the past several weeks has been frustrating, but now evidence says the medium, if not long term bear trend is about to resume. We will likely look to go short on one last squeeze to 1.3676/1.3735 for a resumption of the larger downtrend to 1.3104 and below. NOTE: we may also look to buy $/CHF

...and buy USDZAR

The impulsive advance (seen clearly on intra-day charts) following the test and hold of the 50wk avg/3yr t/line (10.3867/10.3778) says that $/ZAR has resumed its l/term uptrend. We will look to re-enter longs into the 50d (10.5337) for new 2014 highs

Setting up for a sell in gold

In last week’s KrystalBull we wrote that “the medium term trend has turned higher” for gold but that “gold bulls should not get too enthusiastic. AT BEST, we think it can reach the 1334/1374 area (measured move and yearlong contracting range highs) before topping and substantial weakness”. The strength of last week’s move caught us off guard and says that the 1334/1374 topping zone could be reached much more quickly than anticipated. We will look to go short into this zone. As can be seen from the chart below, gold is close to resuming its almost 3yr downtrend after a year of consolidation, with targets seen for a test and break of the 2013 lows at 1180.

INFOGRAPHIC: History of US money

Starting from 1775 when colonialists created their own continental currency, a infographic shared by Ghergich.

by Ghergich.

What is option ?

Dead Cat Bounce Pattern

Dead Cat Bounce Pattern is an event-based pattern, usually occurring after a large decrease in price caused by a news event. After the event-driven price decline, the price will :bounce" a small amount, before resuming its down trend. The larger the decline due to the news event, the larger the Bounce.
Success Rate: 90%, a very reliable pattern.

Duration: 92% are over in 4 days. Th average Bounce has reversed in 2 days.
Volume: Volume during the Decline event can be expected to be massive depending on the severity of the news event. Heavy Volume will continue during the Bounce.

Risks: Quick action is the key to controlling risk with this pattern, since most of these patterns have finished bouncing to the upside after 2 days.

Trading the Pattern: Traders may choose to play a quick bullish bounce immediately after the news event, or they may choose to go short directly after the Bounce. 

The average Bounce gain is 19% of the decline from the news event.

Copper Sentiment Agrees With Technicals

Sentiment for copper prices appears mixed to negative. The worst prospects for demand may be in China, where copper imports have a large effect on worldwide prices. Currently, the majority of China's copper pipe manufacturers now believe prices for their feedstock will decline further. At the same time, Chinese authorities have indicated very recently that they may crack down on the ability of businesses to import the metal as a way of providing collateral for business loans. Halting that practice may result in more copper being released from bonded warehouses where it sits unused, and that is likely to drive price down.

Our technical analysis continues to agree with that downward forecast, although we may see price rise for a few weeks even in the face of immediately bearish sentiment before the decline sets in again.

In our projection into 2015-2016, we still believe the 1.78 area is a likely long-term downward target, although the path from here to there will have some zigzags along the way. The monthly chart for our long-term projection can be found at our website.

Nearer-term price targets also remain unchanged, but it is helpful to see how price is behaving with respect to the downward channel on the weekly chart below. Clearly price recognized the resistance we identified as being just overhead at the end of May, and it has fallen away from that area. Major stepping-stone support levels to watch through the remainder of the year include 2.67, 2.52, and 2.34.

The daily chart shows price as retracing part of the recent wave 'i'. We believe the retrace can go a bit higher, and the area from 3.1220 to 3.1500 represents a good place to watch for the downward trend to resume. We have drawn a speculative path on the daily chart below.

It is important to keep in mind that price can accelerate downward at this point. It is safer now to sell from minor highs rather than to try catch upward moves.

It's Never Different This Time - 1987 or 2014?

While the price analogs of the last few year's exuberance in US equity markets are enough to worry all but the most systemically bullish "believer"; we suspect the following article from the LA Times In the Spring of 1987 will raise a few hairs on the back of the neck of perpetually optimistic extrapolator..

It's never different this time..

"One of the largest bullish factors is burgeoning worldwide liquidity, thanks to expansive monetary policies by central banks. That has helped fuel a surge of foreign investing that could propel US stocks higher, regardless of what happens to the American economy, some analysts say...

Low interest rates also help stocks by making Treasury securities, certificates of deposit and other interest-paying investments less attractive. The sluggish economy, meanwhile, keeps the Federal Reserve from driving up interest rates and prevents inflation from overheating...

Also, the sluggish economy--by keeping manufacturing rates low--discourages money from flowing out of financial assets into such investments as factories and machinery."

     - LA Times, March 8, 1987; a few months before the October 1987 crash

Read that again!!

Never different.

"Notable Improvement" in Fundamental Outlook of Aluminium- Merrill Lynch

Bank of America Merrill Lynch said during Thursday that the global aluminium market had seen “Notable Improvement” in its fundamental outlook. The BofA said that the improvement in market balance has perhaps been remarkable for aluminium that was set to be falling into deficit in world ex-China after many years of structural surpluses.

The remarkable improvement is due to the production cuts by ex-China with US, Russia and Europe, which resulted in curtailments at many aluminium smelters. But, The Bank also underlined a fact that China was lagging behind other global aluminium producers. They added that switching focused slightly, the Chinese aluminium industry, which had seen some of the most quick production growth in recent years, had stood somewhat apart from developments in world ex-China.

 

The bank also noted that any output losses could be offset by investing for new, more efficient plant capacity and could keep the better supply in the Chinese aluminium market. Another factor that benefited the market is the warehouse issues on the LME. BofA Merrill Lynch said there would be a gradual improvement as the queues at the warehouse had reduced the incentives for the light metal consumers to tap shares.

 

It said that the forthcoming changes in the LME rules and regulations had made a subtle change in the market. The other factor is the Indonesian ban on raw material export which also includes bauxite. Bauxite is the primary raw material for making aluminium. But, the bank expects any impact on the global aluminium market would be limited.

 

BofA Merrill Lynch forecasted an average price of $1,720/mt in Q3, rising to average $1,900/mt in Q4 of 2014.Three-months aluminium was trading at $1886.50 per metric tonnes on LME during Thursday.